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Equality and Non-discrimination in Tax Policy
BOX 1
Progressive and
regressive taxes
in Brazil
In a visit to Brazil the
Special Rapporteur
on the Right to Food
showed that according
to one estimate, families with an income
amounting to less
than two minimum
wages pay an average
of 46 per cent of their
income in indirect
taxes, while families
earning over 30 times
the minimum wage pay
around 16 percent in
indirect taxes.
One could similarly
compare indirect
taxes with the property
taxes. In a country with
such high level of land
concentration, property
taxes are set so low
that they represent, as
a percentage of GDP,
0.01 per cent and, as
a percentage of total
taxation, only 0.04
per cent.
In contrast, taxes on
goods and services, as
well as social contributions to pensions and
social security accounted for over 70 per cent
in 2008.3
This is the first in a series of advocacy tools produced by RightingFinance to assist education and
dissemination of standards on tax policy and human rights contained in a report produced by the UN
Special Rapporteur on Extreme Poverty and Human Rights.1 (Unless otherwise noted, textual references in
the text are from that report.)
Normative basis
A fundamental pillar of international human
rights law and an immediate obligation of all
states is the obligation to guarantee that human
rights are exercised without discrimination of any
kind.(para. 12)
In revenue-raising policies, this means that any
action or omission by the State in this area must
not discriminate, either directly or indirectly,
against any individual or group (including on the
basis of race, gender, disability or economic and
social status) or perpetuate discrimination and
inequality.2 (para. 13)
Moreover, in some circumstances, these rights
require States to take affirmative action or special
measures to prevent, diminish and eliminate the
conditions and attitudes that cause or perpetuate
systemic or de facto discrimination. (para. 15)
Applications in tax policy
Regressive vs progressive taxes
Revenue collection is a critical tool for States in
tackling and redressing systemic discrimination
and ensuring equal access to economic, social and
cultural rights. (para. 16)
[C]ompliance with [the rights to equality and
non-discrimination] may require States to set up
a progressive tax system with real redistributive
capacity that preserves, and progressively
increases, the income of poorer households.
(para.16)
While widening the tax base will in principle
provide more resources for satisfying human
rights obligations and is, therefore, a positive from
a human rights perspective, it is “crucial that taxes
be raised and collected in human rights-compliant
ways, where those who can least afford it are not
asked to pay more.” (para. 55)
A progressive tax system is one where those with
more ability to pay, proportionately more taxes
than those with less ability to do so. Direct taxes,
such as tax on income, wealth, rent or property,
are generally more progressive. “Personal income
tax is one of the most progressive and important
kinds of tax…” (para. 46)
Indirect taxes, such as taxes on consumption
– value added tax or sales tax – are generally
more regressive. Among the reasons is that they
generally constitute a larger proportion of the
income of people living in poverty. (para. 46)
“[T]he higher the prevalence of regressive taxes in
the mix of revenue-raising sources, the more likely
it is that a State will run afoul of the principles
of equality and non-discrimination and that the
minimum essential levels of rights enjoyment by
the poorest will be threatened.” (para. 47) (See
Box 1)
In the European Union and other developed
countries, direct taxes represent more than 16 per
cent of GDP compared with a 12 per cent of GDP
for indirect taxes. In Latin America, the respective
figures are 5.6 per cent and 9.6 per cent of GDP.
This correlates with the situation of Latin American
countries where the GINI coefficient4 after taxes
tends to worsen compared to the GINI before
taxes, whereas in the developed countries the
opposite is the case. Reforms in some countries
have made the importance of the relation between
BOX 2
Taxes and
the inequality
coefficient in
Uruguay
The potential of the
balance between direct
and indirect taxes to
change the pre and
post taxes GINI coefficient was shown by
some reforms in the
case of Uruguay.
The GINI index – which
goes up together with
inequality-- was 1.43
% higher after taxes
than before taxes. After
reforms that increased
the weight of direct taxes compared to indirect
taxes in public revenue,
the GINI index is now
1.25 % lower after taxes
than before taxes.
The reforms included
mainly an increase in
the the tax on personal income. (Source:
Presentation by
Pablo Ferreri http://
www.rightingfinance.
org/?p=564)
direct and indirect taxes evident. (See Box 2)
It is worth noting some direct taxes can be
designed in a regressive way. For instance, if
they end up being paid only by people with wage
income, because tax authorities are less willing
or able to tax other types of income. In Latin
America, although personal income taxes exist
in a number of countries, a common practice is
to provide exemptions for capital-based income,
thereby tilting the burden to those with laborbased incomes.5 Likewise, some indirect taxes
can be shaped in a progressive way. For instance,
value-added taxes can have exemptions for goods
consumed by the poorest. Nonetheless, exemption
regimes can be quite cumbersome and costly to
implement.
Comparison with social-spending
programmes
“[T]he negative effect of indirect taxes on the
income of people living in or on the verge of
poverty can be greater than the positive effect
of cash transfers. Such regressive tax structures
also restrict the redistributive aspect of social
programmes, resulting in them effectively being
funded by the very persons whom they seek to
benefit.” (para. 47)
In many countries, cash transfers have been
adopted as a tool to enable vulnerable and
marginalized people to complement their income,
oftentimes conditioned upon verifying that they
sent their children to school, took a vaccine or
realized some other desirable action. As such,
they belong in the spending side of the budget
and can help improve equality outcomes. While
they are undoubtedly welcome from a human
rights perspective, to fully examine their equalizing
impact it is important to see how they are
financed.
Setting the income tax threshold
“A well-placed tax threshold (namely, the income
below which an individual or household is
exempted from income tax) is also crucial for
ensuring that the taxation system does not
jeopardize the ability of people living in poverty
to enjoy minimum essential levels of economic,
social and cultural rights. Unfortunately, in some
countries, households are required to pay tax
before they earn enough to even meet minimum
food basket requirements.” (para. 48)
Levying taxes on people who are already living in
poverty before taxes are considered will lead to
growing inequality. (See Box 3)
The poverty line and the cost of living can serve as
references to determine whether the tax threshold
has been set too low. When tax thresholds are set
as an absolute number, they should be updated
alongside the evolution of inflation.
Discrimination against women
The first link between taxation and women
discrimination has to do with levels of public
revenue. When the state does not collect sufficient
revenue, the first line of cuts tends to be on
essential services, which affects women the most:
“. . . women are more likely to be directly
dependent on social protection and health systems
for at least some period of their lives because of
their sexual and reproductive health and maternityrelated needs. Women also serve as unpaid
alternative care providers when public services
are not adequately funded, increasing their time
burden and limiting their opportunities to engage
in paid work, education, training or leisure, while
also negatively affecting their enjoyment of rights
such as health, education, participation and social
security.” (para. 44)
In addition to their general regressive effects,
the following statement signals the potential
of indirect taxes to worsen inequality based on
gender:
“Women, who tend to use larger portions of
their income on basic goods because of gender
norms that assign them responsibility for the
care of dependents, bear the regressive brunt of
consumption taxes.”(para. 46)
There are other ways in which a tax structure
can have negative effects on gender relations.
In evaluating the impacts, criteria derived from
standard welfare economics –namely, that only
those policy reforms that make some persons or
groups better off without making other persons
or groups worse off are economically desirable
-- will fall off target. It becomes necessary to adopt
policy evaluation criteria that recognize the need to
transform the traditional gendered roles in society
that are currently inequitable.
“[T]ax structures frequently discriminate against
women directly or indirectly, for example by
assuming women’s income to be supplemental
to their household. This actively disincentivizes
wage-earning and therefore could reduce
participation in the labour market by women,
potentially threatening their right to work.”
“Certain tax arrangements that directly or indirectly
disincentivize women’s participation in the labour
force or promote the male bread-winner family
model could threaten women’s enjoyment of
human rights.” (para. 17)
This could be the case, for instance, when there
are higher marginal taxes on secondary incomes.
“Policymakers should be aware of the extent
to which tax policies, such as the treatment of
income derived from jointly-owned assets of
married couples, strengthen or break down gender
inequalities, or discriminate against different types
of households.”(para. 49)
Processes for assessing
differential impacts
“States should evaluate the differential impact of
existing and proposed fiscal policies on different
groups, in particular those who suffer from
structural discrimination.”(para. 17)
One way to establish the differential effects of tax
policy is to have institutionalized procedures for
determining their structural impacts.
Tax abuse
“[H]igh levels of tax abuse undermine the
principles of equality and non-discrimination.”
(para. 60) “[I]f States do not tackle tax abuse,
they are likely to be disproportionately benefiting
wealthy individuals to the detriment of the most
disadvantaged. Monitoring, preventing and
punishing abuse is therefore essential in order
to . . . improve the distributive effects of tax
systems.”(para. 60)
This is because:
a. “evaders end up paying less than taxpayers
with the same – or less – capacity to pay,”
(para. 60) which flies in the face of the need for
progressivity in the tax system.
b. “tax abuse forces Governments to raise revenue
from other sources: often regressive taxes, the
burden of which falls hardest on the poor.”
(para. 60) Increasing the tax burden on the
poor will erode their incomes, running counter
to efforts to reduce inequality.
c. “High net-worth individuals and large
corporations … have a far greater ability to
evade taxes as they are able to pay tax advisers,
lawyers and accountants (who may sometimes
provide inappropriate advice and assistance)
and to open undeclared foreign bank accounts
in low-tax jurisdictions.” (para. 60) The notion
of illicit financial flows comprises, among
other things, amounts evaded by companies
through “tax optimization” schemes that
have no economic or business rationale, but
just an intention to evade or avoid taxes. Tax
abuse is in these cases a violation by not only
the country where the revenue could have
been collected, but also the country(ies) that
enabled the scheme.7
BOX 3
The income
threshold to start
collecting taxes
In Zimbabwe the
tax-freeband for income
from employment
was set at USD 150 a
month when the economy was dollarised in
2009. Since 2010 it sits
at USD 175 a month.
But the amount
required to purchase
food and other essentials for a family of
five to be deemed ‘not
poor’ cost USD 477
in August 2010. The
Zimbabwe Congress
of Trade Unions raised
the issue with the
Ministry of Finance and
advocated for a USD
500 tax threshold.
In Malawi, in 2013, at a
time when the government recently raised the
tax-free threshold from
the equivalent of USD
35 to the equivalent
of USD 46 per month,
the average cost of
living for a low-income household of six
living in urban Malawi
was estimated at the
equivalent of USD 225,
while food costs alone
at USD 133.6
Questions for reflection
• What proportion of tax revenue comes from indirect vs. direct taxes?
Are there features that make the indirect taxes less regressive, and
how do they work in practice? Are there measures that make the
direct taxes less progressive, and how do they work in practice? When
the government considers ways to increase tax revenue, does it factor
in whether they will make the system less or more progressive?
Endnotes
1
A/HRC /26/28, May 22 2014 (available at http://
www.rightingfinance.org/?p=1195)
2
Preamble to the Charter of the United Nations
and Arts. 1, para. 3, and 55; Universal Declaration
of Human Rights, art. 2, para. 1; International
Covenant on Economic, Social and Cultural
Rights, art. 2; International Covenant on Civil
and Political Rights, arts. 2 and 26; International
Convention on the Elimination of All Forms of
Racial Discrimination, art. 1; Convention on
the Elimination of All Forms of Discrimination
against Women, art. 1; and Convention on the
Rights of Persons with Disabilities, art. 2.
• Are there social programmes or cash transfers? Do their equalizing
impacts extend, balance or get offset by the effects of tax measures in
place to fund them?
• At what level is the income tax threshold set, and how does that
compare to the poverty line or other indicators of income? Is the level
high enough to not limit the ability of the poorest to enjoy minimum
levels of economic, social and cultural rights?
• Is the revenue enough to cover public service provision otherwise
likely to be borne by women? Do indirect taxes, based on the goods
affected or exempted, have a differential gender impact? Are there
other tax measures that, by assuming a certain gender role, end up
entrenching structural gender inequalities?
• Are there processes in place to evaluate the differential impacts of tax
policies, with the input of those affected? How do they work?
3
A/HRC/13/33/Add.6, para. 36.
4
The GINI coefficient measures inequality. It
goes up when inequality increases and down as
inequality decreases.
5
Inter-American Development Bank 2012. More
than Revenue: Taxation as a Development Tool,
p. 5.
6
Christian Aid 2014. Africa Rising?
7
See also fourth advocacy tool in this series: “Tax
policy and international cooperation and assistance for the achievement of human rights.”
• How much tax abuse is there and who derives benefits from it?
When the state does not collect sufficient revenue,
the first line of cuts tends to be on essential services,
which affects women the most
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